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  1. Review the taxpayer’s accounting method of revenue recognition if the same is acceptable and consistent with prior years.
  2. Ascertain that all sales were reported as of the cut-off date. Cutoff refers to the point at which entries from one accounting period stop and entries for the next period begin.
  3. Verify revenues/sales recorded and deposited near the end of the tax year and immediately during the subsequent month to determine if these pertain to income earned for the tax year under examination.
  4. Account for all sales invoices issued. Match delivery receipts, gate passes, if any, against sales invoices issued.
  5. Compare totals of sales invoices, sales summary, entries in subsidiary sales journals and general ledger accounts. Inquire and investigate discrepancies between book entries and returns filed.
  6. Reconcile credits to sales with debits to accounts receivable and debits to cash receipts book.
  7. Research unusual and unfamiliar issuances of goods or goods which are not normally sold by the taxpayer.
  8. Conduct interviews to secure information regarding the taxpayer’s business, financial history, number of employees and other information which may lead to sales estimation.
  9. Determine inventory method applied if acceptable and consistently followed.
  10. Determine if merchandise is being withdrawn for personal use or for any other purpose not in relation to normal sales process.
  11. Scan credit memo issued to customers and test check entries to Sales Returns & Allowances and Sales Discounts to insure proper recording of credits.
  12. Verify cancelled sales invoices by test checking deposits made and withdrawal of goods on the day of cancellation.
  13. Tour the business premises to obtain information on:
    1. Sales volume
    2. Volume of sales return and method of handling sales returns
    3. Major products
    4. Other by-products and scrap sales, if any
    5. Equipment used in operation
    6. Nature, quality and size of facilities
    7. Inventory level
  14. Review sales contracts, consignment agreements and other documents relative to sales.
  15. On installment, sales, ascertain that collections have been properly segregated as to the year of sales and that the proper gross profit ratios have been applied. Review unearned or deferred income accounts for any uncollected balances which have been outstanding for an unreasonable period of time.
  16. Determine whether sales on consigned goods are taken up at the time of shipment or after sixty (60) days from the date goods were consigned.
  17. Where the internal control is weak and records are unreliable or inadequate, apply other approaches to audit revenue such as cash analysis, net-worth analysis, third party verification, and other indirect approaches to investigation.


Reference: RAMO 1-2000